Index derivatives turnover falls as RBI tightens bank funding to prop traders

The RBI’s tighter funding norms for capital market intermediaries have started reflecting in derivatives trading volumes, with turnover in NSE’s index futures and options segment declining sharply in July. Market participants, however, believe the full impact is yet to play out as a portion of bank funding sanctioned before the new rules kicked in on July 1 continued to support trading activity during the month.

Data from NSE showed index futures turnover fell 17 per cent month-on-month to ₹3.96 lakh crore in July from ₹4.75 lakh crore in June, while index options premium turnover declined 16 per cent to ₹9.70 lakh crore from ₹11.5 lakh crore. Overall NSE derivatives turnover was down 2 per cent at ₹42.7 lakh crore against ₹43.4 lakh crore in June. Stock futures and stock options premium turnover, however, rose 6 per cent and 27 per cent, respectively.

Industry players said the decline in index derivatives volumes could have been steeper had previously committed bank funding been fully exhausted. They expect the impact of reduced bank support for proprietary traders to become more evident in the coming months as existing facilities are renewed under the revised framework.

The RBI’s revised funding framework has increased cash collateral requirements for bank guarantees and curtailed certain intraday credit facilities, reducing the leverage available to proprietary traders and brokers.

Roop Bhootra, Whole-Time Director, Anand Rathi Share and Stock Brokers, said the impact of the revised framework is expected to unfold gradually as existing facilities are replaced under the new norms.

“Derivatives turnover could witness further moderation over the coming months, especially in the options segment where proprietary traders contribute significantly to market volumes,” he said.

Several market participants expressed disappointment with the regulatory tightening, arguing that proprietary trading firms have historically maintained strong credit discipline and have rarely been a source of defaults for banks.

At the same time, they acknowledged that the industry is likely to adapt given the attractive returns still available in the derivatives market. Traders are expected to explore alternative funding arrangements, although the transition could alter the competitive landscape.

Market participants believe that if domestic prop desks scale back activity because of lower leverage, the resulting opportunity could be captured by foreign portfolio investors (FPIs), global trading firms and other players with stronger funding capabilities.

“The market never leaves a profitable opportunity vacant. If one set of participants pulls back, another typically steps in,” said a senior broker.

Echoing the same, Amit Majumdar, Group Chief Strategy Officer, Angel One, said domestic proprietary trading desks are adjusting to the evolving regulatory environment.

“Returns for prop traders in the Indian derivatives market remain among the most attractive globally, even without leverage, which keeps them incentivised to stay engaged,” he said.

Historically, whenever regulatory changes have affected volumes in one segment, other market participants, including high-frequency traders and institutional investors, have eventually filled the gap, helping volumes normalise over time, he added.

Published on August 2, 2026